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Hiring in Saudi arabia

Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in the Middle East. Riyadh is the capital of Saudi Arabia. Arabic is the official language and Saudi Riyal is the official currency. Saudi Arabia relies on the oil and gas industry. It is the world’s largest exporter of petroleum. Saudi Arabia’s main trading partners are China, US, UAE, Singapore, India Germany and Japan. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Saudi Arabia’s legal and tax regulations. Labor Code stipulates that employees are entitled to 21 days of annual leave. Saudis and nationals of other Gulf Cooperation Council (GCC) states who are resident in Saudi Arabia are not subject to income tax. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Saudi Arabia’s Labor Code and tax laws.

statutory labor requirements

Probation Period

  • An employee can be subject to a probationary period of no more than 90 calendar days and during this period the contract can be terminated without notice. 
  • Subject to the employee's consent, this period can be extended up to 180 calendar days (i.e. six months in total)

Annual Leave

  • As per Saudi Labor Law, Employees are allowed to have Twenty-One (21) days paid annual vacation. 
  • If your employer's employee contract is less than this, you can request it to increase to 21 days.
  • Muslim employees are generally entitled to Hajj leave after 2 years of continuous employment. The leave may be up to 10 days and can only be taken once in 5 years with the same employer.

Public Holidays

  1. Eid-al-Fitr
  2. Eid-al-Adha
  3. Arafat Day
  4. Prophet’s Birthday
  5. National Day (23rd September)

Maternity Leave

  • Female employees are generally entitled to 10 weeks of paid maternity leave, up to four weeks may be taken before the birth and at least six of the weeks must be taken after.

Paternity Leave

  • Fathers are eligible for three days of paid paternity leave.

Sick Leave

  • Employees are generally allowed up to four months of sick leave, if they provide a medical certificate. 
  • Sick leave is paid as follows: 
    • First 30 days: 100% 
    • 31 to 90 days: 75%
    • 91 days to 120 days: unpaid

Work Hours

  • The Saudi working week begins on Sunday and ends on Thursday. 
  • Friday and Saturday are the official days of rest, but in certain cases Saturday might be considered as a working day.
  • Office hours vary, ranging from 7.30am - 8am until noon, then from 3.30pm - 4pm until 7pm - 8pm
.

Overtime

  • An employee's total working hours, including overtime, should not exceed 10 hours a day or 60 hours in a six-day week.
  • here is also an annual overtime cap of 481 hours.
  • According to Saudi labor law article 107, overtime in Saudi Arabia is 150% of the hourly wage.
  • Employers shall pay overtime to their workers at a rate of 150% of their normal wages.

Notice Period

  • For termination of an employee in Saudi Arabia, 60 days’ notice is required on open ended contracts (with an indefinite term and paid monthly).  
  • For fixed term contracts, the notice period is 30 days.

Severance

  • When an employment contract ends, an employee is entitled to an “end-of-service award” equal to one-half of one month’s wages for each of the first 5 years of employment and a full month’s wages for each year of employment thereafter, pro-rated for any partial year’s service.

13th / 14th Month Pay

  • No
  • There is no statutory requirement to pay the 13th or the 14th month salary.
  • Employees receive annual leave of 21 days at the standard rate.
  • Employee bonuses are found in the civil service and some major companies that pay up to two months salary bonus.

income tax

  • Saudis and nationals of other Gulf Cooperation Council (GCC) states who are resident in Saudi Arabia are not subject to income tax. 
  • The GCC states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
  • Non-Saudi and nonresident GCC nationals and entities with a permanent establishment in Saudi Arabia are subject to income tax on their business income in Saudi Arabia. 
  • Payments to nonresidents are subject to withholding tax
  • In principle, foreign individuals are taxed on income derived from investments in Saudi projects at a rate of 20%. 
  • A flat income tax rate of 20% is applied to the tax-adjusted profit of resident non-Saudi and non-GCC individuals.

Income Tax

Income Tax

0%

Income tax applied to tax adjusted profit of resident non-Saudi and non-GCC individuals.

20%

deductible expenses

  • A taxpayer may deduct all necessary, provable and certifiable expenses incurred for the purposes of the business to the extent allowed under the tax regulations.
  • All expenses that are necessary and normal to the business, paid or accrued, are allowable deductions, provided the expense meets the following conditions:
    • It is an actual expense, supported by a verifiable document or other qualifying evidence.
    • It is related to the generation of taxable income.
    • It is related to the subject tax year.
    • It is of a non-capital nature.
  • School fees paid by taxpayers for their employees’ children are deductible expenses, provided they meet the following conditions:
    • They are paid to a local licensed school.
    • This benefit is stated in the employment contract.
  • Employers’ contributions to employees’ pension funds or savings funds established under Saudi Arabia’s rules and regulations are deductible, provided that such contribution, one payment or in aggregate, is not in excess of 25% of the employee’s income before the employer’s contributions and that the fund meets the following criteria:
    • The fund is established according to special provisions that clearly stipulate conditions of subscription and rights of subscribers.
    • Such obligation is stated in the employment contract or in the Articles of Association of the establishment.
    • The fund has a character independent of the establishment and has separate accounts audited by an independent CPA.
  • A deduction is allowed for R&D expenditure incurred during the tax year in connection with the generation of income that is subject to tax. 
  • Other expenses subject to deductions are depreciation, loan charges, bad debt, charitable contributions and startup expenses.

Deductible Expenses

School fees paid by taxpayers for their employees children

Employer’s contribution to employees’ pension fund

R&D expenses

Depreciation

Loan charges

Bad Debt

Start-up expenses

Charitable contributions

immigration 

  • Saudi Arabia depends substantially on foreign workers for its labor requirements. 
  • However, the government is making concerted efforts to increase the number of Saudi nationals in the workforce and, consequently, considers the availability of Saudi national workers before granting a work visa to a foreign national. 
  • Work visas are issued to foreign workers who come to Saudi Arabia to work under employment contracts with local employers for a maximum initial period of two years. 
  • To obtain a work visa, an application is submitted to the Saudi embassy or consulate in an applicant’s home country together with a passport, a copy of the employment contract, a medical certificate and proof of professional qualifications. 
  • It takes approximately two to four weeks to obtain a visa after all of the documents are submitted. 
    • The Work / Employment visa will allow a stay of between 14-90 days. 
  • On entry into Saudi Arabia, an application is then made by the employer for a residence permit (iqama) for the employee. 
  • An employee may work while a residence permit is being processed or renewed. It is possible to change employers with the approval of the existing employer. 
  • Foreign nationals may not carry out trading activities in Saudi Arabia. 
  • A foreign national who is a professional (for example, an accountant, engineer, lawyer or consultant) may conduct business in Saudi Arabia by setting up a professional partnership with a Saudi national, according to the professional partnership regulations.

Type of Visa/Permit

Documentation

Validity

Eligibility

Work Visa

  • Original valid signed employment contract in Arabic
  • Original passport valid for at least the duration of the employment contract
  • Completed application form
  • Copy of relevant academic qualifications (notarized by the educational institution and the Saudi embassy)
  • Color passport photos
  • Original support letter from the sponsoring employer
  • Copy of the invitation letter issued by Saudi Ministry of Foreign Affairs
  • Police clearance dated within 6 months of the application
  • 2 years (private sector firms)
  • Work visas are issued to foreign workers who come to Saudi Arabia to work under employment contracts with local employers for a maximum initial period of two years. 

Residence Permit (Iqama)

  • Passport (original and a copy)
  • 2 passport-sized pictures of you
  • 2 passport-sized pictures of your employer
  • Completed iqama application form
  • Medical exam report
  • Medical insurance
  • Biometrics / fingerprints (which are done at the time of arrival by the immigration authorities)
  • First year iqama fees (SR 500) and an additional two-years’ worth of fees (SR 1000)
  • HRD fee (SR150)

5 years

  • If planning to reside and work in Saudi Arabia, the individual is required to obtain an Iqama (residency permit),
  • On entry into Saudi Arabia, an application is then made by the employer for a residence permit (iqama) for the employee. 

value added tax

  • Value Added Tax (or VAT) is an indirect tax imposed on all goods and services that are bought and sold by businesses, with a few exceptions.
  • Saudi Arabia imposed VAT on January 1, 2018 
  • VAT was introduced at a standard rate of 5%.

VAT

Standard Rate

5%

withholding tax

  • Payments made from a resident party or a PE to a non-resident party for services performed are subject to WHT.
  •  The rates vary between 5%, 15%, and 20% based on the type of service and whether the beneficiary is a related party.
  • The WHT should be paid within the first ten days of the month following the month during which the payment was made.
  • The domestic rate for WHT is 5% on dividends, 5% on interest, and 15% on royalties.
  • A 5% withholding tax is levied on dividends paid to a nonresident, unless the rate is reduced under a tax treaty
  • A 5% withholding tax is levied on interest paid to a nonresident, unless the rate is reduced under a tax treaty
  • A 15% withholding tax is levied on royalties paid to a nonresident, unless the rate is reduced under a tax treaty
  • A 5% withholding tax is levied on technical service fee paid to a nonresident third party, unless the rate is reduced under a tax treaty

WHT

Dividends

5%

Interest

5%

Royalties

15%

Technical Service Fee

5%

 termination

  • Employees with unlimited contracts are entitled to receive 60 days’ notice. 
  • Employees with other contracts are entitled to 30 days’ notice. 
  • If proper notice is not given, the parties can agree to compensation instead. 
  • During the notice period, employees may use 8 hours of work time per week to find alternate employment. 
  • There is not notice period for definite contracts as it is rare to have a valid reason for ending a definite contract early.
  • When an employment contract ends, an employee is entitled to an “end-of-service award” equal to one-half of one month’s wages for each of the first 5 years of employment and a full month’s wages for each year of employment thereafter, pro-rated for any partial year’s service.
  • An employment contract may be terminated in the following situations:
    • by mutual consent of the employer and the employee;
    • upon expiry of the employment term specified in the contract, unless the contract has been explicitly, contractually or statutorily renewed. Statutory renewal relates to the situation where the employee commences employment under a fixed term contract and continues to work after the original contract term has expired. In such a case, the contract will convert into an indefinite term contract and will not require further renewal;
    • when the employee reaches the age of retirement;
    • upon the occurrence of a force majeure event;
    • where the business permanently closes (i.e. permitted redundancy);
    • where the employer terminates the entirety of the activity in which the employee is employed (i.e. permitted redundancy);
    • for cause

statutory benefits

  • These are mandatory benefits as postulated by law
  • These benefits include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, notice period, overtime pay, and end of service award
  • Statutory benefits also include social security benefits

Statutory Benefits

Probationary Period

Annual Leave

Public Holidays

Sick Leave

Maternity Leave

Paternity Leave

Overtime Pay

Notice Period

End of Service Award

Social Security Benefits

payments and invoicing

  • A resident self-employed foreign professional or a resident foreign individual carrying on business activity in Saudi Arabia must file a tax return and must pay the tax due within 120 days after the end of the tax year.
  • An advance payment on account of tax for the year is payable in three installments by the end of the sixth, ninth and twelfth months of the tax year.
  • A taxpayer is not required to make advance payments if the amount of each payment calculated above would be less than SAR500,000.
  • A delay fine of 1% for each 30 days of delay is computed after the elapse of the first 30 days from the due date of tax until the tax is paid.
  • Fines for non-submission of tax declarations by the deadline are payable at a rate of 1% of the total revenue, subject to a maximum delay fine of SAR20,000. However, fines based on unpaid tax are payable instead of the fine described in the preceding sentence if the fines based on the unpaid tax are higher.

ease of doing business 

  • The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • According to the World Bank Saudi Arabia ranked 62nd in the World in 2019 in terms of ease of doing business.

employee accruals

   
Christmas Bonus%

0%

Christmas Bonus Over Vacations %

0%

Severance per Year %

Employees are entitled to severance pay that equals 50% of monthly salary after one year of service (4.16% of annual salary)

Vacations % Employees are entitled to 21 days of annual leave (5.76% of annual salary)
Notice %

Employees are entitled to a 60 days notice period for one year of service or more (16.43%)

Christmas Bonus Over Notifications% 0%
Vacations Plus% Based on 8 days a year (of which 4 are Eid ul Fitr and 4 are Eid ul Adha) 2.19%
Total percentage of Salary (yearly) The total employment accruals as a percentage of salary per anum are equal to 28.59%

employer accruals

Additional information (Country Accruals)

   
Social security 12.00%
Maternity 14weeks
Christmas Bonus 8.33%
Vacations 8.32%
Description Coverage Social insurance contributions are paid monthly based on the monthly basic salary plus housing (paid or in kind) with an upper limit of SAR 45,000, are computed at 2% for non-Saudi employees (note that this is not social insurance, it is occupational hazard), and are paid by the employer. For Saudi employees, the rate is 22% and is paid by both the employee (10% = 9% social insurance + 1%unemployment insurance [SANED]) and the employer (12% = 9% social insurance + 2% occupational hazard + 1% unemployment

Employer Accruals Additional information

    Employment Accruals
Annual Leave As per Saudi Labor Law, Employees are allowed to have Twenty-One (21) days paid annual vacation. This equals 5.75% (21/365 days) of annual income
Maternity Leave Female employees are generally entitled to 10 weeks of paid maternity leave, up to four weeks may be taken before the birth and at least six of the weeks must be taken after. This equals 19.2% (10/52 weeks) of annual income
Paternity Leave Fathers are eligible for three days of paid paternity leave. This equals 0.82% (3/365 days) of annual income
Sick Leave Employees are generally allowed up to four months of sick leave, if they provide a medical certificate.
Sick leave is paid as follows:
• First 30 days: 100%
• 31 to 90 days: 75%
• 91 days to 120 days: unpaid
This equals 8.22% (30/365 days) of annual income
Overtime An employee's total working hours, including overtime, should not exceed 10 hours a day or 60 hours in a six-day week.
There is also an annual overtime cap of 481 hours.
According to Saudi labor law article 107, overtime in Saudi Arabia is 150% of the hourly wage.
Depends on the number of overtime hours worked
Severance When an employment contract ends, an employee is entitled to an “end-of-service award” equal to one-half of one month’s wages for each of the first 5 years of employment and a full month’s wages for each year of employment thereafter, pro-rated for any partial year’s service. This equals 4.16% (0.5/12 months) of annual income
Social Security Employers must make the following contributions: - Pension Contribution 18%; Unemployment Insurance 2%; Occupational Hazards Insurance 2%. This equals 22% of annual income

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